A new privately-run hospital supported by the World Bank's private sector arm, the IFC, is threatening to bankrupt the health budget of one of the poorest and least-healthy countries in the world.

The Queen Mamohato Memorial Hospital in Lesotho is the first of its kind in any low-income country in the world - built, financed and run entirely as a "public-private partnership". The IFC considers it one of the flagships for the future of African health care. It is now advising on similar projects in Benin and Nigeria.

In a report today, A Dangerous Diversion, Oxfam and the Lesotho Consumer Protection Association (LCPA) say that the running and loan costs of the three-year-old hospital complex in the capital Maseru have blown out to $67m a year - or 51 percent of Lesotho's health budget. This is three times more expensive than the old hospital it replaced.

Oxfam fears the deal is skewing resources away from the poorest people, especially in rural areas, and will expose Lesotho to future cost escalations too.

A consortium called Tsepong Ltd - among whose shareholders are South African healthcare giant Netcare, which is also the UK's biggest private health provider - won an 18-year contract to build and run the 425-bed hospital. Its return on investment is 25 percent. The IFC advised on the deal and got a $723,000 success fee from it.

The IFC says the new hospital performance is a great improvement, achieving a 41 percent reduction in the death rate compared to the old hospital.

"Everyone wants the people of Lesotho to have the very best quality health care. Oxfam is first to celebrate people being saved and healed at the new hospital. But the figures don't stack up," said Oxfam's health policy advisor, Anna Marriott. "The IFC is opening up Africa's health sector to private business but on this evidence it's a flawed and dangerous plan."

More than half of Lesotho's people live in poverty and three-quarters of them live in the rural areas, where poverty is 50 percent higher than in the city. Lesotho has the third highest HIV rate in the world. Life expectancy is 50 years, down from 60 in 1990. Child and maternal mortality is increasing. Poor people are less likely to seek health care because of cost and distance to travel. The new hospital has cut maternal mortality in the capital by 10 per cent however four times more pregnant women are dying in poor rural areas than in the city.

The IFC's role in supporting the new city hospital deal seems to contradict the World Bank's own advice that Lesotho should prioritise health and nutrition in its rural areas, which are still heavily under-resourced.

LCPA director, Lehlohonolo Chefa, said: "Our government is piling more money into health care but not enough of it into rural areas where most people need it. It's going instead into this otherwise important tertiary facility in the city and from there into private pockets including of one of the world's biggest health companies.

"Lesotho was promised a better health service for the same price - and that just hasn't happened. Other countries in Africa and indeed all over the world need to look closely at this experiment in Lesotho and be very wary of repeating it."

Anna Marriott said "It is troubling that the IFC has pushed such an expensive and risky strategy when cheaper public financing alternatives should have been explored further with the government."

Lesotho's problem is not happening simply because it's a poor country but rather because health public-private partnerships of this kind are inherently costly and precarious. There have been challenges and inefficiencies with a range of PPPs in Australia, with a significant number of them ultimately returning to public ownership. Japan's government has defaulted on some of its PPP deals. The UK's National Health Service is under pressure to cut jobs and salaries because of the "PFI affordability gap". However many countries such as Turkey, Malaysia, Brazil,
Mexico, South Africa, Chile and Peru are now looking to introduce health PPP deals.

Oxfam and the LCPA say that the IFC's role in exposing Lesotho to such a high-risk, high-cost long-term contract should be investigated and, until then, the World Bank should stop all IFC advisory work in support of health PPPs.

The UK Government is not involved in this Lesotho project, but they are providing financial support to the IFC's health PPP advisory facility. Oxfam is therefore calling on the UK government to stop this IFC advisory work on health PPPs and review their support for this high-risk, high-cost model of health financing and delivery.